Companies look to lengthen currency hedges as elections loom, survey shows

By Thomson Reuters May 21, 2024 | 11:47 AM

NEW YORK (Reuters) – Companies are increasingly looking to lock in foreign exchange rates for longer, as they seek to protect profits from the potential fallout from currency gyrations that could follow elections expected around the globe this year.

The largest companies are the most risk averse, implementing the longest hedge windows – 7.5 months on average – according to research based on a quarterly survey of 250 senior finance decisionmakers at UK and U.S. companies conducted by currency management firm MillTechFX last month.

Hedge windows refer to the time frames used by companies when buying foreign exchange hedges, and firms looking to lengthen this duration typically will favor longer dated options or forwards over shorter-dated ones.

Nearly half of all respondents said they plan on increasing hedging length due to upcoming elections, the survey showed.

“In a year where more than half of the world’s population across 80 countries will head to the polls, it’s no surprise to see geopolitics are heavily influencing corporates’ FX hedging decisions,” Eric Huttman, chief executive of MillTechFX said in the research note.

Geopolitics and central bank policy were the two biggest influences on companies’ currency hedging in the first quarter, the survey also showed.

The U.S. dollar has gained 3.2% this year against a basket of major currencies helped by the relative strength of the U.S. economy.

(Reporting by Saqib Iqbal Ahmed; Editing by Tomasz Janowski)